The Opposition Leader, Bill Shorten has announced a plan today for the Labor Government (if elected) will change the dividend imputation system to only allow for franking credits to be applied to offset tax on taxable income, rather than act as refundable tax credits.
For many SMSFs, this refundable credit measure introduced back in 2000 under the Howard/Costello Government has played an important role in the vast sums of superannuation monies remaining invested within the Australian share market. For some SMSFs, this franking credit refund added as much as 2% of the fund's rate of return each year and ensured that the attributable tax rate on the income reflected the rate of tax payable by the taxpayer - i.e. accumulation phase 15%, pension phase - 0%.
The ALP would not release the costing, but said the (Parliamentary Budget Office) PBO found:
As you can see from the above historical statistics don't represent the current state of cash refunds post super reforms from 1 July 2017.
The implications of this change can expand far and wide... firstly, the targeted audience of the Labor Party less than 12 months ago have already seen the benefit of imputation credits slashed in half due to the introduction of the transfer balance cap, with excess amounts either being rolled back to accumulation (subject to 15% tax rate) or have left the superannuation system and taxed at a marginal tax rate (although could be 0% personally where under the tax-free threshold of $18,200).
If Labor was elected and if this policy was introduced it could have significant ramifications on the investment profile of SMSF investors. Whilst I wouldn't see older Australians necessarily allocate greater amounts into property due to liquidity reasons, I could see more focus on international markets which means more capital moving off the balance sheets of Australia companies.
The Coalition have been quick to jump on this, so we will watch this with keen interest...
Episode 44 - The great pension squeeze
Episode 43 - How the SMSF sector continues to evolve
Episode 42 - why real change is important in the SMSF sector
Episode 41 - Our tech stack
Episode 40 - Changes to 2018 SMSF Annual Return
Episode 39 - Future of SMSF - insights into the sector today
Episode 38 - Class Benchmark Report - March 2018
Episode 37 - opportunities with the downsizer contribution rules
Episode 36 - It's TBAR time...
Episode 35 - Superannuation and the Federal Budget 2018-19
Episode 33 - Do pension SMSFs match their stereotype?
Episode 32 - My takeaways from the SMSF Association National Conference 2018
Episode 31 - Living your brand in a smarter way
Episode 30 - Why not all death benefit nominations are the same
Episode 29 - Documenting decisions in taking more than the minimum pension
Episode 28 - 8 things to focus on in 2018
Episode 27 - Impact of changes to partial commutations
Episode 26 - CGT Relief: Segregated method and adopting the proportionate approach
Episode 25 - Insights from the Class SMSF Benchmark Report - September 2017
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